SB 40-CONSTRUCTION OF HIGHWAYS BY DOTPF  MR. MARK O'BRIEN, Chief Contracts Officer for Department of Transportation and Public Facilities (DOTPF), told members the effect of SB 40 would be to prohibit DOTPF and agencies that it transfers projects to from using their own employees when the project costs exceeded $250,000, but by statute DOTPF may exercise the use of a force account in two instances. One is for community and boardwalk projects where an agency such as the Bureau of Indian Affairs (BIA) has a project and DOTPF is providing access to that project. DOTPF may transfer [funds] to the BIA to accomplish that project. In many cases, a transfer is in the interest of all agencies and is cost effective. SB 40 would also affect municipalities and cities because they would be prohibited from asking for and receiving transfer of a project if the cost exceeded $250,000. MR. O'BRIEN said the second instance under which DOTPF could exercise a force account is when they use their own maintenance staff to accomplish capital projects. DOTPF has been addressing close to $200 million in deferred maintenance by using federal aid funds and state maintenance staff to perform those projects during the summer. The types of maintenance projects that are eligible include cracked ceilings, bridge repair, chip seal road surfacing, and others. The program benefits DOTPF in a number of ways. It provides the ability to transfer costs of the winter maintenance program to a federal aid project, thereby preserving general fund dollars for severe winter events. DOTPF can then retain year-round skilled, knowledgeable employees. It also allows DOTPF to fund a portion of its equipment costs and defray some of the state costs of maintaining equipment by charging those costs to the federal aid projects, which further stretches the dollars for deferred maintenance. MR. O'BRIEN said another key factor is the size of the program. DOTPF's summer maintenance program represents less than three percent of the federal aid program. More than half of that three percent is contracted out to the private sector now. He said the impetus for this legislation was the St. Mary's project. CHAIR COWDERY remarked the St. Mary's project did stir things up a bit but he knows that DOTPF did a 35 mile chip seal project on the Old Seward Highway a few years ago and referred to it as a maintenance project. He said other states use different standards for maintenance and construction. He has no problem with DOTPF doing maintenance work, but he believes construction projects should go out to competitive bid. He said some states consider any project that costs over $50,000 to be a construction project rather than a maintenance project. He pointed out that before the state came into its oil wealth, the state got a non-construction rate from the unions during the winter and hired equipment operators from the union halls to plow the snow. He said those are some of the reasons he introduced this legislation. He placed a $250,000 limit in the bill because DOTPF said some projects cost less than $100,000. He said he believes the competitive process is a good one and that everyone should be entitled to the same Davis-Bacon wages in both rural and urban Alaska. 1:40 p.m.  SENATOR OLSON said the St. Mary's project is in his district. He clarified that project was completed ahead of schedule and under budget. He pointed out that it looks like there will be a request for a significant amount of money to complete the Anchorage International Airport, which he finds appalling. He then asked Mr. O'Brien if he had a breakdown of the source of funds used for force account projects, specifically federal and general fund money. MR. O'BRIEN said almost all of the funds used for the force account programs are federal aid funds. DOTPF receives very little in terms of general funds. SENATOR OLSON asked how many DOTPF employees would be affected by the passage of SB 40. MR. O'BRIEN said he hadn't done that calculation but one of two things would happen. Without the ability to use the federal aid to subsidize the general fund, DOTPF would either have to reduce its summer employment or it would not be able to respond to severe winter events with overtime hire. He said management would have to decide which alternative to take and either alternative would result in a different number of employees that would be affected. SENATOR OLSON asked what kind of effect this legislation would have on future supplemental budgets. MR. O'BRIEN said in order to respond to severe winter events, DOTPF managers would have to make some tough choices. Either additional funding would have to be provided to pay for overtime work to address such an event or DOTPF would have to reduce summer employment. He said a budget increase would be necessary to maintain a consistent work force throughout the year and respond to winter events. SENATOR OLSON asked how much of DOTPF's capital budget would be affected by this bill. MR. O'BRIEN said since nearly all of the force account work is done with federal funds, SB 40 would affect all projects that cost over $250,000. SENATOR OLSON said he was asking for a definitive number. MR. O'BRIEN said he has not computed the numbers in that manner. CHAIR COWDERY referred to Senator Olson's comment on the St. Mary's project being completed under budget and said there is nothing to compare that cost to because it was not put out to competitive bid. He said he believes an audit is being done on that project now and added that DOTPF has been very supportive of the concept of day labor contracts, which would assure that local people get the work. SENATOR OLSON said the numbers that were forwarded to his office show that DOTPF budgeted over $3 million for the St. Mary's project while total expenditures were about $2.7 million. CHAIR COWDERY said his point was that a private contractor might have bid that project at $1.7 million. He said there is no way to know what the private sector might have estimated the cost to be. SENATOR LINCOLN said her questions about Administrative Order 199 (AO 199) hadn't been answered and although she doesn't know its status, she believes it plays into SB 40. She pointed out that as a resident of Rampart she has seen what happens when an outside contractor comes in and doesn't believe in the day labor contract concept. She has seen outside contractors bring in all of their own food, manpower, equipment, some housing and even furniture. Her community pushed for the runway project and had to be very vocal to get just two local people hired. She said the letter from Mr. James of the Tununak IRA Council shows that such jobs are the lifeblood of many small communities and SB 40 would have a devastating impact. She urged to look at what is in the best interest of the entire state and repeated she is very uncomfortable that her questions about AO 199 have gone unanswered. CHAIR COWDERY asked if the equipment was available in Rampart to do the runway job. SENATOR LINCOLN replied some equipment was available. CHAIR COWDERY said he worked on a number of projects in rural Alaska and needed to import a lot of things. He hired and rented locally as much as possible. He said the day labor contract concept is pretty much tailored to the local people. SENATOR WAGONER commented that he understands the concerns of rural communities but he also understands the position of the contractors. A woman from Nome recently testified that her company would bid on any size project in rural Alaska. He said he sees the need for force accounting but believes it should be limited. He asked how many projects Mr. O'Brien foresees using a force account on during the next year that would cost in excess of $250,000. MR. O'BRIEN said using the year 2000 as a baseline for the number of projects, two were below $250,000 and the rest were more. He said, "... just looking back through the lists, a price tag of $1 million would probably take care of 60 to 70 percent of them - allow them to be done. A price tag of half that would probably let 15 to 20 percent of them through." SENATOR THERRIAULT asked whether any communities formed construction companies to bid projects or were they are barred from doing so. He pointed out those communities should be able to underbid other contractors because they would not have to mobilize anyone. MR. O'BRIEN said, in order to do a construction project in excess of $100,000 in Alaska, an entity must be bonded. In addition, that entity must meet the requirements set for a licensed and bonded contractor. A surety company looks at expertise, past performance, equipment capability and capacity before it agrees to bond an entity. He said he is not aware of any consortiums or groups that have been created to respond to state bids in rural Alaska. SENATOR THERRIAULT commented those hurdles are not insurmountable. He questioned whether those requirements should be waived. MR. O'BRIEN said there may a way to assist those entities. DOTPF is restricted by statute to doing business with certain entities. He said if that barrier is broken down, an entity could bid a project on a competitive basis. CHAIR COWDERY said the Native corporations have the ability to bond small groups. MR. O'BRIEN said if there is no licensed surety within the state, there is an option under the bonding for individual sureties to bond construction companies. It requires two individual sureties to provide identical bonding at the full amount. CHAIR COWDERY asked if the purpose of bonding is to assure that all employees get paid and to guarantee performance. MR. O'BRIEN said that is correct. SENATOR LINCOLN responded to Senator Therriault's question about why a village could not compete for a bid and said what usually happens with a force account project is that a particular village does a particular project, but they aren't ongoing. She said the Doyon Corporation did get involved in construction for a very brief time, but none of the 38 village corporations in the Interior have a construction company because it is cost prohibitive for small villages. SENATOR WAGONER said in his area just about all of the oil field contract work has been taken over by Native corporations. He said they hire both Native and non-Native employees. He said he believes strongly in bidding out any project and using force accounting when no bids are received. SENATOR THERRIAULT moved SB 40 from committee with individual recommendations with its zero fiscal note. SENATOR LINCOLN objected because the only other committee of referral was the Senate Finance Committee and this committee didn't even know how many projects would be affected by this legislation or what is happening with AO 199. She said there are too many unanswered questions to pass this legislation from the one and only committee that would scrutinize it. SENATOR OLSON stated his objection as well saying this legislation is less palatable than the version introduced last year because the limit has been reduced from $1 million to $250,000. CHAIR COWDERY called for a roll call vote. The motion to move SB 40 and its attached zero fiscal note from committee carried with Senators Therriault, Wagoner and Cowdery voting in favor and Senators Lincoln and Olson opposed.